- Forum Admin wrote:
- Dear Bart,
I trust you are well.
As discussed telephonically I have a query with one of my client's Trust owned Altrisk policies. Currently the Trust is the owner of the policy as well as the beneficiary. The client is simply the life assured and premium payer.
I would just like to find out if it is not more beneficial for the Trust to be the premium payer as well and what are the tax implications of this upon the death of the assured life.
Thanking you in advance.
The short answer would be: "yes, it would be more beneficial for the trust to be the premium payer as well"
In terms of sec 3(3)(a) of the Estate Duty Act the proceeds of life policies are included within the deemed property (of the estate of the deceased) if they meet the following criteria:
- there must be an amount due and recoverable;
- under a policy of insurance which is a "domestic policy" as defined; and
- the policy concerned must be upon the life of the deceased
The amount of the life policy proceeds falling within deemed property for this purpose is, however, limited to the excess of those proceeds over the sum of the following:
- any premiums or consideration proved to the satisfaction of the Commissioner to have been paid by any person who is entitled to the amount due under the policy; and
-interest at the rate of 6% ....
The following should be noted in relation to this limitation (also known as "deduction"):
* The premiums concerned must have been paid by the person entitled to the amount due under the policy. The Commissioner must be satisfied that this is the case, and in practice this is fairly rigidly enforced, in the sense that the Commissioner must be satisfied that this funding of the premiums was from the funds of the person concerned. Merely lending the necessary funds to, for example, a trust, will NOT meet this requirement if the trust does not possess separate funds which are used to fund the premiums.
In conclusion then, if the trust founder makes monthly payments to the trust which the trustees then use to pay the monthly premiums on the policy, the Commissioner would most likely see this as a scheme which is being used to benefit from the allowable deduction mentioned above. It is suggested that the trust founder should rather make an unconditional annual donation to the trust (which is sufficient to cover the monthly premiums) and leave it to the trustees to utilize the trust funds to pay the monthly premiums.